Company Voluntary Arrangements
The challenges that many businesses have recently faced as a result of the economy can often result in good businesses being severely affected by a downturn in sales, or by rising overheads.
This has placed additional pressure on businesses who may not know if they should continue to trade or not. One solution, which appears to be becoming more popular with Directors, is to look at Company Voluntary Arrangements (CVA). A CVA would enable a business to ‘ride the storm’ with their existing business, believing that they are sufficiently profitable to enable payment of their historical debts providing they are given the time to do so.
What is a Company Voluntary Arrangement?
A CVA is a legally binding agreement between a Company and its creditors to pay back as much as they can afford over a given period of time. It enables the business to continue to trade and the contributions can be made through ongoing profits introduced monthly, or via a lump sum. Debts will also crystallise meaning that no further interest is likely to be accrued.
Main considerations when proposing a CVA
The Outcome for the Creditors
The proposal must ensure that what is being proposed would be better than the alternative.
The Attitude of the Creditors
75% of the unsecured creditors (by value) who vote in relation to the CVA need to accept the terms of the proposal in order for it to be deemed approved.
Crown Liabilities
Although government legislation is intended to promote business rescue, HM Revenue & Customs may reject a CVA proposal on the grounds of a previous history of poor payment. Companies therefore need to ensure that every effort has been made to seek repayment plans with HMRC.
Fit, Feasible and Fair
The CVA should represent a fair offer, which is capable of being achieved and is fit to be proposed and considered.
Benefits of a Company Voluntary Arrangement
The most important benefit of a CVA is that it is a formal method of business recovery, providing protection to the company and allowing the business to continue, whilst enabling a better outcome for creditors. Another benefit of a CVA is that it is a way of buying time to either cut unprofitable areas of a Company or to simply start seeing the benefits of rises in sales or increased spending on marketing.
An added benefit available to Directors when choosing a CVA is that less focus remains on them; limited investigations are undertaken and no report is submitted to the Insolvency Service on their conduct.
How we can help
For further information on Company Voluntary Arrangements or any other business rescue and insolvency advice please call TaxAssist Accountants.
We work with experts like F.A. Simms & Partners who can give vital advice to make a difference to your business.
Help and Advice
Contact us now so we can discuss your requirements; call us on: 0800 0523 555 Or fill in our Contact form and we will call you back.
